Very interesting comments by James Leitner (money manager for Falcon Management) in a recent edition of The Deal magazine regarding developing countries and the link between human rights & economic empowerment and prosperity in the developing world.  As the article notes:

“…Developing countries are no longer trapped at the periphery of the investable universe. Foreign direct investment and portfolio investment have flooded into emerging markets in the search for attractive yields and new opportunities. This liquidity has filtered through the nascent financial systems of regions such as Africa and South Asia. The spillover effects have begun to transform all facets of life in many long-overlooked countries.

The new economic prosperity found in parts of the developing world has catalyzed the emergence of more sophisticated and accountable institutions. Governments and civil society organizations have matured in tandem with increasing investment inflows and private sector-led development. I firmly believe that good governance built on solid institutions and the rule of law leads to greater prosperity….

…Through our research at Falcon Management Corp., we have uncovered linkages between good governance, economic freedom, human development and stock market returns. We examined three relevant indexes: the U.N. Human Development Index, the Heritage Foundation’s Index of Economic Freedom and the World Bank Ease of Doing Business Index. These indexes encompass a variety of basic measures of regulatory reform, development and rule of law, and we have begun using them to help us choose the financial markets we believe will outperform.

We found that the stock markets for the top 10 most improved countries in each index dramatically outperformed relevant benchmarks during the year after the index results were published….

We have developed and implemented an investment strategy based on our list of most-improved countries. This year our shortlist of countries included Romania, China, Georgia and Kazakhstan. So far, our investments have rewarded us with attractive returns and have allowed us to capture dividends paid by the structural reforms reflected in these countries’ improved index rankings. This “virtuous cycle” of investment, development and reform underscores an emerging trend of financial markets encouraging and rewarding human and institutional development in historically destitute countries….”